Wealthy mortgage borrowers face cold shoulder from lenders • Hacker News Board

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#181

Post by magicsmoke » Sat, Apr 25, 2020, 3:15 AM UTC

t0mas88 wrote: post #169

magicsmoke wrote: post #113

Earlier quoted context omitted.

Loans that are likely to default have higher interest rates. However, jumbo loans also have high interest rates due to the size of the principal. Although they're supposed to be less likely to default, being held by high-income individuals, if they do default then you lose more principal than a regular loan. For a bank in good times, you get to charge high interest rates normally reserved for risky borrowers on safe…

But in a well working market, why wouldn't bank X provide a lower rate than bank Y if the loan is less risk and very profitable? And then bank Z sees a potential profit and undercuts bank X. Repeat until you get a rate that reflects the risk? So the real question is: What is wrong in the high-end US mortgage market? Are banks breaking anti-trust laws and setting price floors?

Because they aren't really low risk. There's two different kinds of risk being referenced here.

Risk 1: High chance of default. This is the risk you take by lending to borrowers with poor credit.

Risk 2: Low chance of default, but when defaults happen you take a big hit. These are jumbo loans.

Banks recognize that Risk 2 has inherent costs that require a higher interest rate. My previous wording of "More profit with less risk" was false. More profit with less Risk 1, but that's because you're taking on Risk 2.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#182

Post by jjeaff » Sat, Apr 25, 2020, 3:51 AM UTC

perl4ever wrote: post #171

tempsy wrote: post #133

Earlier quoted context omitted.

This has nothing to do with actual credit risk. It has to do with the Fed’s decision as part of the stimulus package to buy mortgage backed securities backed by conventional loans but not jumbo loans. So banks have an out to sell bad conventional loans off their balance sheet to the Fed but have to take all the credit risk for jumbo loans even though those borrowers are more credit worthy and wealthier than your typi…

Distortion is a value judgement based on some probably arbitrary idea of baseline fairness. Is there anything substantive you could say about why this is distortion - i.e. is a bad thing?

A distortion is a distortion. Whether that distortion is a good thing or not, is a value judgement.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#183

Post by perl4ever » Sat, Apr 25, 2020, 4:45 AM UTC

tempsy wrote: post #179

perl4ever wrote: post #171

Earlier quoted context omitted.

Distortion is a value judgement based on some probably arbitrary idea of baseline fairness. Is there anything substantive you could say about why this is distortion - i.e. is a bad thing?

No. What’s happening is that poorer, less creditworthy people are getting better rates and more likely to be approved than more creditworthy and wealthier people. That is a distortion.

That's based on arbitrary anchoring. If you disconnect anyone from resources to back up their borrowing, they are less creditworthy. There's no absolute objective arbiter of what sources of credit are legitimate and what aren't.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#184

Post by ta1771 » Sat, Apr 25, 2020, 7:35 AM UTC

gdubs wrote: post #54

alexhutcheson wrote: post #47

Earlier quoted context omitted.

The median sales price for a house in the US is $327,000[1]. People buying houses for $1 million are wealthy by any standard. [1] https://fred.stlouisfed.org/series/MSPUS

They’re not wealthy by the standard of the Bay Area, which is the point of the comment you’re replying to. Wealth is relative. Otherwise you could say that just about any American middle class family is wealthy — just look at the entire world’s population, where anyone making over something like $40k a year would be in the top 1%. Just to underscore the point, Palo Alto declares not too long ago that anyone making un…

> Otherwise you could say that just about any American middle class family is wealthy

They..are?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#185

Post by naveen99 » Sat, Apr 25, 2020, 1:41 PM UTC

magicsmoke wrote: post #113

raziel2p wrote: post #108

> Before the pandemic, lenders were falling over each other to welcome jumbo borrowers, who generated fat profits even though they were the least likely to default. Even though? Implying loans that default are normally the most profitable? Am I misreading this?

Loans that are likely to default have higher interest rates. However, jumbo loans also have high interest rates due to the size of the principal. Although they're supposed to be less likely to default, being held by high-income individuals, if they do default then you lose more principal than a regular loan. For a bank in good times, you get to charge high interest rates normally reserved for risky borrowers on safe…

I think the reason they aren’t doing loans is because there has been a >20% decrease in real estate value given the slow down in travel and even commuting to work. it’s clear from reit prices. it’s just that the residential market is very high friction and illiquid that we don’t see the price change on Zillow yet.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#186

Post by aguyfromnb » Sat, Apr 25, 2020, 1:42 PM UTC

TeMPOraL wrote: post #10

aguyfromnb wrote: post #8

Earlier quoted context omitted.

> Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). > we're allowed to expect institutions to do things that are in the public interest This articl…

> Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). No. But then again, being a businessman isn't seen as unqualified virtue in many places in the world. You'll also note that "selling things to the people who need it most for the lowest price" is literally the justification given for why…

>is literally the justification given for why free and competitive markets are good.

If you think "price that minimizes default" and "lowest economic price" are equivalent, you need to brush up on your Econ 101.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#187

Post by aguyfromnb » Sat, Apr 25, 2020, 1:45 PM UTC

bryanrasmussen wrote: post #15

aguyfromnb wrote: post #8

Earlier quoted context omitted.

> Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). > we're allowed to expect institutions to do things that are in the public interest This articl…

>Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). I think a business that sells something for a small markup but makes it up in volume does something like this. So I guess the answer would be - yes - probably most businesses actually do this.

>I think a business that sells something for a small markup but makes it up in volume does something like this.

Define a "small markup".

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#188

Post by aguyfromnb » Sat, Apr 25, 2020, 1:47 PM UTC

andrepd wrote: post #79

aguyfromnb wrote: post #8

Earlier quoted context omitted.

> Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). > we're allowed to expect institutions to do things that are in the public interest This articl…

>Does any business operate this way, including the one you work at? Maybe it means that some institutions, especially ones with such a critical role as controlling the money supply , perhaps should not be run with a for-profit model, but some other model that better ensures the institution will serve the public interest, rather than the interest of an exceedingly small handful of elites. Typing this out it seems even…

>but some other model that better ensures the institution will serve the public interest

Your social concerns are completely detached from reality if you're shedding tears over people with jumbo loans that are unable to refinance their million dollar mortgages from 4% to 2%. It's theatre.

I appreciate your white-collar, anti-capitalist rant, though. Unfortunately, when SHTF, the truly down trodden might even consider people like this part of the problem. I don't think they'll buy the idea that "we're all on the same team!".

>It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives.

You're right, we should put our non-elite, galaxy brain politicians, the Trumps and Pelosis and Bidens and Bush's of the world, in charge of controlling the money supply.

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#189

Post by tehwebguy » Sat, Apr 25, 2020, 9:53 PM UTC

berbec wrote: post #96

tehwebguy wrote: post #89

Earlier quoted context omitted.

Sure but someone is still running the drive-thru at every McDonald’s in the bay area.

And I imagine they take a hellishly long mass transit commute

Doesn’t basically everyone in the bay area?

Re: Wealthy mortgage borrowers face cold shoulder from lenders

#190

Post by perl4ever » Sun, Apr 26, 2020, 1:33 AM UTC

jjeaff wrote: post #182

perl4ever wrote: post #171

Earlier quoted context omitted.

Distortion is a value judgement based on some probably arbitrary idea of baseline fairness. Is there anything substantive you could say about why this is distortion - i.e. is a bad thing?

A distortion is a distortion. Whether that distortion is a good thing or not, is a value judgement.

No, people express values by insisting that definitions include their values implicitly. That's because they think it's a clever trick to force other people to accept their values, but I think it's overrated. You know how in 1984, they controlled thought through language? I always thought that was dumb. But everyone certainly tries.